Written by: Craig Erlam | OANDA Europe
There's no fading vaccine optimism in Europe, it seems, with the great rotation continuing in favour of those names battered by the pandemic this year. The US is more of a mixed bag with tech being the biggest drag after months of doing the heavy lifting.
It's been a bit of a choppy day in Europe but broadly speaking, we're seeing a similar trend to yesterday, albeit not quite to the same degree. The post-pandemic world that at times this year has looked a distant dream is suddenly a little in sight, following the Pfizer/BioNTech announcement yesterday and investors are seeing some value in those companies who's business plans have been decimated this year.
Of course, major hurdles still remain - final approval, production, distribution to name a few - but yesterday was a really promising step and others may join them in the coming weeks that will really get investors excited.
The pandemic-proof stocks have sky-rocketed this year and it's those that are now set to underperform as the world starts to find its feet again. Zoom was a prime example of one of these yesterday and is off another 7% in early US trade. Earlier this year, the company became a household name overnight - a must-have for businesses and quizzers alike - now it has the tough job of maintaining popularity in a less restrictive world.
It's going to be a really interesting end to the year. The biggest downside risk remains Covid and how severe this wave is going to be. Lockdowns across Europe, to varying degrees, aim to ease restrictions in early December but as we saw earlier this year, it isn't always that straightforward. And as everyone can probably see for themselves, compliance is looking a much greater challenge this time around which may impact the success of it.
While the US election continues to be disputed by the Trump administration, which will remain top of the news agenda, Covid is impossible to ignore, particularly with cases soaring once again and deaths on the rise. With the election itself out of the way, we may see increased restrictions from the states worst hit in an attempt to curb the winter surge.
Covid relief is seemingly not on the way any time soon, with Mitch McConnell citing last week's jobs reports as evidence that only a smaller package is warranted, something the Democrats are likely to strongly contest. Which means it's once again down to the Fed to do the heavy lifting.
Central banks are once again being leaned upon, much to the delight of investors given what stock markets typically achieve during these periods of massive easing. In fact, the end of this year could provide the perfect cocktail of widespread monetary and fiscal easing, combined with one or more vaccines.
UK unemployment jumps but furlough scheme should limit future increases
Unemployment in the UK has reached 4.8% in the three months to September as the original furlough scheme drew to a close and employers were forced to make tough decisions. As it turned out, the scheme was reintroduced as the government announced another national lockdown but that came too late in the day for many but just in time to stop a far greater spike in the rate.
It won't be enough to stop it altogether but it will certainly be lower than previous estimates. What's more, with the furlough scheme now running until the end of March, there's time for more of these vaccine trials to produce positive results that mean we won't be facing the same cliff-edge in March that we were in October. Perhaps I'm just too hopeful.
On a plus note for the UK, crunch Brexit talks are seemingly going quite well with little noise from either side giving us any major cause for concern. Next year is shaping up to be better than the one many have experienced in 2020 and the best way to start is with a trade deal with your largest trading partner, rather than, well, the alternative.
Oil buoyed by recent supply and demand developments
Oil prices are continuing to bask in the glory of Pfizer and BioNTech's early success, with Brent and WTI up more than 1.5% on the day and not far from the post-summer highs. Both contracts were in tricky territory less than two weeks ago after spiralling almost 20% as Europe went back into lockdown.
Since then, the soothing words of Alexander Novak and yesterday's vaccine news have seen crude prices bounce back strongly and for the first time in a while, there may be a bullish case building. That said, surging Covid cases poses a major near-term risk for global growth which may necessitate OPEC+ pushing back planned production increases slightly if they want to sustain these levels. Throw in some more positive results from AstraZeneca/Oxford, Moderna and GSK/Sanofi and OPEC+ may decide to push ahead as planned.
Gold could break three month lows
Gold is enjoying mild relief today but remains not far from the bottom of its three month lows. The yellow metal came under considerable pressure yesterday as US yields jumped on the vaccine news, offering hope of an economic recovery next year. That's pushed gold back to its lows and should that optimism continue in the coming weeks, maybe even backed up by some other positive vaccine data, $1,850 may be lost.
Beyond that, I still think gold is bullish longer term. We're back in monetary stimulus season and the Fed and ECB are expected to follow up in December, with governments also being forced into loosening the purse strings further. This could pressure the dollar in 2021 and be another supportive factor for gold.
Related: Stock Markets Are off To a Blistering Start After Pfizer's COVID-19 Vaccine Update